The evolving landscape of sustainability regulation increasingly reflects broader geopolitical tensions, regional politics and competing economic visions. While the final shape of key regulations, such as the CSDDD, remains uncertain and approaches continue to diverge between major economic blocs, the complexity of navigating the maze of existing and emerging legislation is going to remain a key challenge for business.
Going back to basics might offer a solution though. Companies that ground their compliance efforts in the UN Guiding Principles on Business and Human Rights (UNGPs) and OECD Guidelines are going to be better placed to simplify and speed up the process.
Why? As ESG becomes increasingly politicised, multinational companies find themselves grappling with an ever-more demanding set of environmental and social obligations. However, beneath surface-level political differences and regulatory variations, most mandatory human rights and environmental due diligence (MHREDD) laws share common roots in the established frameworks provided by the UNGPs and the OECD. This creates an opportunity for companies to build robust, adaptable compliance approaches even as regional standards evolve along geopolitical lines.
Competing approaches to sustainability legislation
Europe is the global pacesetter for sustainability regulation, having developed ambitious frameworks like the Corporate Sustainability Due Diligence Directive (CSDDD) and Corporate Sustainability Reporting Directive (CSRD). Despite some political resistance, these regulations illustrate the EU's stringent approach to corporate accountability and its vision of sustainability as a fundamental business requirement.
The United States presents a different picture. Sustainability is now a political issue where Republican-led states and the new administration in Washington are enacting legislation that downplays ESG requirements, while Democrat-controlled jurisdictions, such as California, advance their own set of rules.
In Asia, diverse regulatory approaches are emerging that reflect varying stages of economic development and different political priorities. China has just released a draft of their own version of the European Sustainability Reporting Standards (ESRS) – the Chinese Sustainability Disclosure Standards (CSDS), while Japan and South Korea are developing sophisticated ESG frameworks that emphasise corporate governance and environmental protection. Each maintains a distinctive approach to implementation. Southeast Asian nations are also introducing sustainability requirements, though often with greater flexibility and longer implementation timelines than their European counterparts.
A common language for human rights and environmental due diligence
This regional divergence in regulatory approaches reflects broader geopolitical realities and competing visions of economic development. As supply chains reorganise and economic relationships evolve, sustainability standards may be fragmenting along regional lines, creating multiple, potentially incompatible compliance regimes.
However, amid this complexity, the frameworks of the UN Guiding Principles on Business and Human Rights (UNGPs) and OECD Guidelines on Responsible Business Conduct provide the bedrock on which companies can build a foundational and cross-cutting approach to their due diligence processes. These internationally recognised standards provide a common language and methodology for human rights and environmental due diligence that transcends regional political differences.
This offers companies a vital pathway through the tangle of regulations. By aligning with these core frameworks, organisations can build robust due diligence processes that satisfy multiple regulatory requirements, even as specific rules evolve and diverge across regions.
The key lies in focusing on the substantive elements these frameworks share:
- Systematic risk identification, assessment and prioritisation
- Meaningful stakeholder engagement
- Impact mitigation, prevention and remediation
- Transparent reporting
- Continuous improvement processes
Key to this process is the use of risk exposure data that is aligned with the human rights and due diligence requirement of these standards, to help identify, assess and prioritise human rights and environmental risks in a methodologically sound and defensible way. This offers a robust platform for taking meaningful and effective action to prevent, end, mitigate and remediate harms in a company’s operations and value chains.
Companies adopting this approach position themselves well regardless of how regional regulations develop. Organisations will undeniably need to meet each jurisdiction's requirements separately, but by adopting the OECD and UNGP guidelines as their baseline they can build comprehensive due diligence systems that adapt to various regulatory demands while maintaining consistent global standards.
Looking ahead, while political and geopolitical tensions may continue to complicate the regulatory landscape, the fundamental expectations around corporate responsibility for environmental and human rights impacts are unlikely to diminish. If anything, these expectations will likely increase as climate impacts intensify and social inequalities demand greater attention.
Meeting these challenges requires understanding both the geopolitical context shaping regulations and the common principles underlying them.
Success in this environment demands:
- Understanding regional political dynamics and their influence on sustainability regulation
- Maintaining alignment with core international frameworks
- Building flexible compliance systems that can adapt to varying requirements
- Engaging proactively with stakeholders across regions
- Contributing to the development of harmonised standards where possible
The smart way forward
While the politicisation of sustainability and regional regulatory divergence create challenges, they don't change the fundamental imperative for companies to understand and address their environmental and human rights impacts. By focusing on established international frameworks, organisations can build resilient compliance approaches that transcend political divisions and meet evolving global standards.
